Traditional finance and investments have many features that make investing in traditional investment classes like stocks and bonds easy. One of those things is an index fund. Built to mirror the performance of a market index, an index fund gives investors an opportunity to invest in all the components of the market index they mirror.

Even though over 100 billion dollars are traded in cryptocurrency daily, the existence of a unit of measurement like index funds in traditional finance is not as common. With over 6000 cryptocurrencies across the market, figuring out what coins to invest in would take the average crypto user considerable time and effort spent on research.

The cryptocurrency scene is now playing catch up and warming up this particular feature of traditional finance. This is where crypto index tokens come in. Crypto index tokens are created to track and represent the performance of a segment of the crypto market.

What Is a Crypto Index Token?

A crypto index token is a type of token that represents and mirrors the performance of a group of cryptocurrencies. In essence, crypto index tokens allow crypto traders to profit from a diverse group of cryptocurrencies by simply purchasing or investing in one token.

This group of cryptocurrencies is referred to as an index. The price of crypto index tokens is determined by weighing the market capitalization of the segment of the cryptocurrency market that the token represents. The structure and purpose of a crypto index token vary across several tokens; while some derive their value from the top performing cryptocurrencies, others focus on alternative coins.

Nevertheless, just one token considers the market capitalization of all cryptocurrencies: the Total Crypto Market Cap Token.

What Is the Total Crypto Market Cap Token?

Created by Cryptex finance, TCAP or Total Cryptocurrency Market Cap Token is an index token that represents the entire global total crypto market capitalization. Cryptex Finance designed TCAP to mimic the work of benchmark indexes like the S&P 500 in traditional finance; as such, it is considered the benchmark token for all cryptocurrencies. TCAP allows investors to invest in the entire crypto market at once. By investing in this token, investors can profit from the success of the entire crypto market.

TCAP is favored by some investors because, unlike other tokens, it represents the entire crypto market. Investors can save time and money that they would have spent researching and investing in diverse cryptocurrencies across the entire market containing over 6000 currencies.

How Does the TCAP work?

To ensure the accuracy of the pricing of the toke, Cryptex, in creating the TCAP token, partnered with Chainlink oracle, a decentralized oracle network that supplies accurate data on the performance of different coins in the cryptocurrency space and the market cap of all these coins.

Using the data provided by Chainlink oracles, TCAP applies a straightforward calculation to determine its value. The value of a TCAP token can be arrived at by simply dividing the current total market cap of all cryptocurrencies by 10 billion. At the time of writing this article, the total crypto market cap stood at $1,308,200,000,000. Dividing that value by 10 billion gives us $130.82, the current price of a TCAP token.

Cryptex’s token, TCAP, was designed to mimic the performance of stablecoins– maintain a fairly constant price– but the token considers more than just stablecoins when deriving its value. This means that, should there be a sudden rise or fall in the broader crypto market, the total market cap and, by extension, the price of the TCAP token would follow suit.

Additionally, TCAP is supported by Ethereum smart contracts, and as such, it is considered an ERC-20 token.

How Can You Profit From TCAP?

The first and most common way to profit from the TCAP token is by minting the token on the Cryptex app. While Cryptex does not charge its users to mint the token, they charge a 1% fee each time you burn tokens.

Alternatively, users can provide liquidity to TCAP liquidity pools on decentralized exchanges like Sushiswap, Gemini, and Coinable.

What Are the Benefits of Index Fund Tokens Like TCAP?

When placed side by side with the more common practice of building individual and personal portfolios, Crypto Index tokens provide more benefits. Here are some of the advantages of investing in crypto index tokens:

Mitigates Costs

The world of cryptocurrency consists of over 6000 coins, and investing in a large portion of all the coins available would cost the average investor a significant amount in trading fees. Because each blockchain network charges differently, investors may have to choose what coin to invest in to reduce their transaction fees.

This problem can be eliminated by investing in index tokens. Investing in one index token means bearing the cost of the transaction just once.

Saves Time

A robust portfolio is a major part of any investor’s ideal investment strategy. However, gathering information on a large number of coins to choose the best ones may take a lot of time and effort. Investors can cut their research time significantly by learning about index tokens and deciding what tokens to invest in.

Simplified Portfolio Diversification

The process of diversifying a cryptocurrency investment portfolio by adding on individual altcoins of defi tokens may prove incredibly difficult and time consuming. Index tokens that focus on specific segments of the crypto market exist to solve that problem. For instance, the DeFi Pulse Index (DPI) represents the various DeFi tokens, CRYPTO20 Index Token represents the top 20 cryptocurrencies, and NFT Index Token monitors how digital assets in the non-fungible tokens space perform.

Conclusion

Notwithstanding the apparent advantages of index tokens, investors need to keep the volatile nature of the market in mind. Index tokens have the potential to save investors time and money, but they are not immune to risks. In the case of TCAP, a sudden rise in top performing coins like Bitcoin (BTC) and Ethereum (ETH), which make up 60% of the total crypto market cap, would result in a significant hike in the token’s value. Similarly, if those top coins were to drop significantly, the entire market would suffer, and so would the token’s price.

Like any other investment option, investors need to tread carefully, conduct extensive research and brace themselves for any risks they might come into if they invest large amounts of money into crypto index tokens.